Global Wage Gap Continues to Widen

New Worldwatch Institute report examines discrepancies among earners and regions as well as the widening gap between wages and productivity

Washington, D.C.—A dual gap has opened in global wage trends. The wages of most workers are falling more and more behind those of top earners, even as average wages are failing to keep pace with labor productivity growth, according to new research conducted by the Worldwatch Institute for its Vital Signs Online service (www.worldwatch.org).Wage trends are heavily influenced by globalization and the economic crisis that caused the ranks of the unemployed to swell from 169 million in 2007 to 198.4 million in 2009, according to the International Labour Organization (ILO). Although the number temporarily dipped to 193.1 million in 2011, a preliminary estimate for 2012 indicates it was back up to 197.3 million, writes report author Michael Renner.

Cumulatively, from 2000 to 2011 global real monthly average wages grew by just under a quarter. But global figures hide considerable regional differences. Wages almost doubled in Asia, whereas they increased by 18 percent in Africa and 15 percent in Latin America and the Caribbean. Wages in the Eastern Europe and Central Asia region (which includes Russia) nearly tripled. But this surge came on the heels of economic collapse after the fall of communism, which led wages to contract severely. In Russia, the subsequent growth only returned wages to what they had been at the beginning of the 1990s. In the Middle East, the limited wage data available suggest stagnation during the last decade. In industrial economies, wages increased by a comparatively tiny 5 percent, albeit from a much higher base than in other parts of the world.

Data collected by the U.S. Bureau of Labor Statistics (BLS) for the manufacturing sectors of 34 countries illustrate the tremendous wage differentials around the world. Countries with the highest hourly compensation are primarily found in northern and western Europe; Norway had the highest reported compensation at $64.15 per hour in 2011. Japan and the United States are in the middle of the field, while southern and eastern European countries, most of Asia, and Latin America all have lower compensation. The Philippines has the lowest rate of the 34 countries, at $2.01.

Although not directly comparable due to data gaps and methodological differences, BLS also offers estimates for China ($1.36 per hour in 2008) and India ($1.17 in 2007). The estimate for India covers only the country’s formal manufacturing sector, for example. People who work in the informal manufacturing sector account for some 80 percent of India’s total manufacturing employment, but they earn substantially less than workers in the formal sector.

Since the 1980s—long before the world economic crisis of 2008—wages in many countries stopped keeping pace with improvements in labor productivity. Trade globalization, the expansion of financial markets, and declining trade union membership combined to erode the bargaining power of workers, and thus less of the wealth produced globally is going to labor compensation while a rising share is going to profits. According to the ILO, average labor productivity in industrial countries increased more than twice as much as average wages did between 1999 and 2011.

Average wage figures mask extremes of wage inequality. There is in fact a growing gap between top earners and the rest of the workforce, especially those in unskilled or low-skilled, temporary, precarious jobs.The ILO finds that especially in English-speaking countries there has been a sharp increase in the salaries and compensation of top corporate executives.In the United States, the top 1 percent of wage earners saw their annual earnings go up by 156 percent between 1979 and 2007.For 90 percent of U.S. workers, in contrast, wages advanced by a much smaller 17 percent during the same period.

“The gap between wages and labor productivity and the rising inequality of wages are developments that raise fundamental questions of fairness in the economy,” said Renner, a Worldwatch Senior Researcher. “The extremely unequal distribution of income and wealth that has emerged worldwide has profound consequences, determining who has an effective voice in matters of economics and politics, and thus how countries address the fundamental challenges before them.”

Further highlights from the report:

From 1978 to 2011, CEO compensation (including salaries, bonuses, long-term incentive pay, and stock options) at the 350 largest U.S. companies increased more than 725 percent—compared with just 5.7 percent in average worker compensation.

Among the 12 initial members of the European Union, Germany was the only country where average real compensation per employee declined in the period 1999–2010.

CEO-to-worker compensation ratio rose from 18-to-1 in 1965 to a peak of 411-to-1 in 2000, and it was 209-to-1 in 2011.